Why use usage-based SaaS pricing models

It’s quite common to find a business offering usage-based pricing in SaaS. The main thing for any SaaS model is how to deliver the perceived value of the product to the customer.

User-Based Pricing

With products such as CRM solutions or Helpdesk, the value for each customer is typically delivered on a per-user basis. To put it simply it means that customers should be charged for each user license they need.

When a customer has five support reps they can use CRM to solve a set amount of tickets a day, which is equal to a certain value

With more support reps they are able to solve more problems per day, and they can see that the value of the service increases over having 5 reps; as a result they should pay more for the service.

It sounds pretty simple, but is it really all that simple? There are plenty of different ways to provide your service at a price that better showcases the value the customer sees in the service. The main way to do this is through usage-based pricing.

Usage-Based Pricing

Usage-based pricing is a good idea with transactional products and services. With this model you are saying that one “transaction” is equal to some measurable value that the customer can see for themselves. So what services are good examples of usage-based pricing?

Example 1: Clearbit

Clearbit is a product that runs on an API-based model. This means that the value to the customer is delivered through an API connected to a machine rather than through a user interface to the user. With this kind of transaction product customers are charged based on how many requests the API receives.

Example 2: Braintree

Braintree offers payment solutions and is a perfect example of transactional businesses. If you were to ask Braintree customers what value they get from the business they would say that it is on a “per-transaction” basis. This is just how Braintree charges for their product as they charge customers based on how many times they charge their Stripe card. This makes things really simple for their customers.

Example 3: Twilio

Twilio gives application developers the power to program telephony-based features into the application using an API. The SMS product they offer is entirely transactional, and so is the pricing as customers are charged per message they send. This once again shows the best way for the business to measure their value for their customers and also makes it easy to estimate the costs of running the service.

Conclusion

When you look at infrastructure-based SaaS products you see that there is a lot of usage-based billing going on – things that can be integrated into the platform to develop and distribute functionality faster. All the examples provided above should be simple to explain to your customers to help them understand how and why they are being charged.

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